Possible shortened title: China's declining economy and tourism in Thailand

In the first half of 2023, only 1.4 million Chinese tourists visited Thailand, indicating a significant decline in visitor numbers. Tourism and exports of chemical products and plastic pellets are expected to decline due to a slowdown in the Chinese economy, according to the latest study by the Planning Division of Thailand's Ministry of Commerce.

Director-general of the Office of Trade Policy and Strategy Punpong Naiyanapakorn said liquidity problems in China's real estate sector are a major problem for the economy and are hampering its recovery after the removal of strict measures to control the spread of Covid-19. Most real estate businesses in China use extensive debt financing for a large number of projects. This poses the risk of a real estate bubble, Mr. Punpong notes. Earlier this month, the People's Bank of China announced the "Three Red Lines" criteria aimed at reducing the risk of a real estate bubble and limiting the expansion of real estate debt. Only 6.3% of Chinese real estate companies meet these criteria, making it nearly impossible for most businesses to obtain additional loans for their operations.

Coupled with declining sales during the pandemic, many companies faced serious financial difficulties, including major player Evergrande. Evergrande has over 1,300 projects, accounting for nearly 25% of China's economy, making it one of the most indebted companies in the world. Earlier this month, she filed for bankruptcy. In addition, China's largest real estate business Country Garden is showing signs of defaulting on interest payments on dollar-denominated bonds.

With the sheer size of the real estate sector, which accounts for about 29% of China's GDP, its problems have far-reaching implications for the Chinese economy. The economy grew just 0.8% in the second quarter of this year compared to the first quarter. It has also affected the financial situation of the people as about 70% of urban residents invest in real estate for income and investment and falling real estate prices lead to significant financial losses.

The crisis in the real estate sector has also affected the labor market as the construction sector is a major employer with over 62 million jobs.

Retail sales of home-related goods, especially interior furnishings, fell significantly between January and July. According to Mr. Punpong, the impact of these events has also affected the Thai economy, especially tourism and Chinese spending on overseas travel, as well as other indirect effects. Thailand's tourism sector has suffered as Chinese tourists previously accounted for about 28% of the country's total visitors. In 2019, 11.1 million Chinese tourists visited Thailand, generating revenue of 530 billion baht. However, only 1.4 million Chinese tourists visited Thailand in the first half of 2023, indicating a significant decline in visitor numbers.

In addition, the export sector has suffered through several channels, including a decline in the purchasing power of Chinese consumers due to the economic slowdown caused by real estate difficulties, as well as the impact on exports of certain raw materials due to problems in Chinese real estate, especially chemical products (used in construction) and plastic pellets. Other construction-related products such as steel and steel products, aluminum products, machinery used in construction, and cement and plastic products are unlikely to be hit hard as China is not a major export market for Thailand.

Nonetheless, Mr. Punpong noted that since China is a major consumer and importer of commodities such as steel, copper and gold, a slowdown in the country's economy could lead to volatile prices for these products, affecting Thailand as a consumer. He advised Thai entrepreneurs to closely monitor China's real estate situation as it has a significant impact on the country's economic recovery, which in turn affects the Thai economy, especially in tourism and international trade.

In the case of trade, China is Thailand's main trading partner and second largest export market, accounting for about 12% of Thailand's total export value. Therefore, the Chinese economic situation has significant implications for Thailand's export sector, said Mr. Punpong.